Future of money: Back to a networked future

WHEN Isaac Newton became warden of the Royal Mint in 1696, he swore an oath not to reveal details of the markings designed to give the game away if miscreants clipped silver from coins. Even today, the UK pound bears the words decus et tutamen – meaning “an ornament and a safeguard”.

Money has come a long way from the days when coins had intrinsic worth. Now currency has gone digital, and we have seen an explosion in the ways that we can buy. Among the latest is Google’s attempt to position itself as a major financial player with an app that lets users pay with a swipe of their smartphone.

Concerns about the integrity of money have also seen a fundamental shift since the days of Newton. While fraud is still a concern, the financial collapse of 2008 has called into question the competence of the central banks that are supposed to manage national currencies. In this week’s technology special (see “Future of money&colon; Virtual cash gets real”) we examine how the internet is allowing groups of people to set up means of exchange that are independent of both the banks and the state.

Private currencies are nothing new but novel possibilities such as Bitcoin now beckon. Though bitcoins are magicked out of nothing, money is what money does, and many people are happy to accept bitcoins as payment for real goods and services. The bitcoins in circulation are now worth around &dollar;50 million in conventional currency.

A digital currency like the bitcoin is favoured by libertarians and privacy advocates for its ability to facilitate anonymous online transactions. The value of the currency is protected from inflation by using computational complexity to keep it artificially scarce. Nevertheless, it may not appeal to ordinary consumers, who will have no one to complain to if the value does collapse.

“Ordinary consumers will be wary of having no one to complain to if a virtual currency collapses”

Governments may want to clamp down on what they see as a way to evade taxes, and some nations have already taken action. Two years ago China banned the use of virtual currencies to purchase real-world items.

But the future of money, as so much else, may be shaped by the internet’s ability to bring interested parties together outside the ambit of governments or big companies. Under a scheme operating in the city of Macon, Georgia, for example, special bonds are issued to residents – but each person receives only half a bond, and can only redeem it by locating the person with the matching half. Participants must seek each other out through online social networks such as Twitter, then decide together how to spend the cash. Attempts to set up such “local currencies” have been tried many times before, but have usually proven too difficult to co-ordinate and organise. Social media offer such schemes a new lease of life.

That’s why the impact of the internet on money is to be welcomed&colon; it has the potential to return money to its roots, which predate Newton by millennia. Rather than being held in thrall by aloof and often unaccountable institutions, it might once again become anything two parties can agree on as a medium for the exchange of goods and services. Our words will once again be our bonds. Because, ultimately, money is about relationships.